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Investors Buying from San Diego Foreclosed Homes for Auction

May 22, 2009

Real estate investors have been returning to the San Diego and Riverside region, among the counties with the highest number of foreclosed homes for auction, as they compete to buy distressed properties from banks and other sellers, according to realtors in the region and based on home sales data.

The investors almost always beat their fellow bidders as they are loaded with cash ready to put on the table when they see foreclosed homes for auction that attract their interest.

But the investors are becoming more cautious than individual buyers who intend to occupy what they buy, according to Alan Nevin, an economist working for San Diego-based MarketPointe Realty Advisors.

One reason is that investors pay higher mortgage rates than owner-occupants even if they are on the same level of creditworthiness.

Another reason is the decline in rents, the potential source of income of most real estate investors buying foreclosed homes for auction.

As home prices dropped in the past years, rents also dropped to about 60 to 80 cents per square foot. Some investors said that the rent paid for some properties cannot cover the monthly loan payments.

Nevin said that buying foreclosed homes for auction priced higher than $250,000 is too risky if an investor plans to rent them out. It only works if the investor can make a relatively big down payment.

Real estate investor Bruce Norris said that some investors can earn monthly income if they make down payments of at least 20 percent.

Besides, most mortgage lenders nowadays require real estate investors to make down payments of at least 20 percent to prevent the properties from easily becoming foreclosed homes for auction.

Nevin said that investors can take advantage of buying opportunities in condominium complexes which have reduced their prices due to lack of demand.

Because of the decision of Freddie Mac and Fannie Mae to stop repurchasing units in condo complexes with many units owned by investors, condo complexes have been having difficulties filling their units. Hence, they have lowered their prices, giving opportunities both for owner-occupants and investors who are able to make cash payments.

Based on home sales data from MDA DataQuick, investors have not been returning in droves just like during the housing boom.

Sales of homes to owner-occupants have risen by around 67 percent since last year’s first quarter, compared to the 56 percent increase in the number of investors looking for foreclosed homes for auction and other homes.

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